(Wesley Tingey/Unsplash) In pretrial proceedings on July 15 in its case against Binance, lawyers for the U.S. Securities and Exchange Commission (SEC) struggled to justify their request for a near-total financial freeze order against American arm Binance.US. Judge Amy Berman Jackson, who is expected to oversee the entire case, was palpably annoyed as the SEC lawyers tried to fill the gaping hole in their allegations with wilting word-salad. The exchanges, available in transcript form, were reported in coverage of last week’s hearings, but made the rounds of crypto Twitter again this week. They add to the much broader impression that the Securities and Exchange Commission has overreached its mandate at many levels in its apparent crusade to destroy cryptocurrency as a technology and industry in the United States. It also adds to increasing signs of displeasure with these tactics from other branches of government. The June 15 hearing considered the SEC’s June 6 request for an emergency injunction to freeze the assets of Binance.US, and to repatriate to the U.S. assets held abroad by related entities including Binance.com. The request could be seen as part of the SEC’s larger attempt to paint Binance as not just in violation of U.S. securities law, but as a fundamentally fraudulent parallel to FTX. Requesting an asset freeze to ensure, as the SEC put it, “that Binance.US customers’ assets are protected and remain in the United States” suggests a belief that U.S. customer assets are at risk of being stolen by Binance entities or officials abroad. The SEC has already seemingly failed to convince one important counterpart of this parallel: the U.S. Department of Justice has so far declined to file parallel criminal charges against Binance or CEO Changpeng Zhao. In the case of FTX and its CEO Sam Bankman-Fried, civil and criminal charges were filed within hours of each other. As Judge Amy Berman pressed the SEC’s lawyers, it became increasingly clear that the SEC had at best circumstantial grounds for its requested freeze. Jackson expressed sharp frustration when the SEC could not provide any clear sign that U.S. customer assets had been, or were planned to be, exfiltrated by Binance International. “It's happening or it's not?” Judge Barrett asked at one point. “It's kind of stunning to me that I've now asked this question to each of you [SEC lawyers] five times” without getting a clear answer. “So currently the assets are not going offshore,” replied SEC counsel Jennifer Farer. “…the current accounts, we're not seeing any flows of money [to] outside of the United States.” Judge Jackson also noted seeming discrepancies in earlier documents supporting the injunction request. “There are a lot of details about amounts transferred and where they went…” Barrett asked the SEC’s lawyers. “You say these funds consisted in significant part of Binance platforms, plural, customer assets, including those of Binance.US … Can you clarify or walk me through the transfers you allege were made specifically from the U.S. entities, as opposed to the international Binance platform, to offshore accounts held by Zhao, and how you know that those were customer assets?” The SEC lawyers did not appear to provide that clarity. Instead, SEC counsel returned repeatedly to large transactions involving offshore entities. In one instance when Jackson pressed for detail on the claims of U.S. customer funds “dissipating” abroad, the SEC’s Matthew Scarlato repeated SEC claims that funds had moved among Binance.com, CEO Changpeng Zhao’s personal entity Merit Peak and the holding company Key Vision. Farer elsewhere claimed that assets flowing out of the U.S. were in fact not the key issue, because the freeze order on Binance.US was also intended to protect U.S. investor assets abroad. “We are concerned about all U.S. investors, both those on the domestic platform, Binance.US, and the international platform, Binance.com.” This again left Judge Jackson seemingly flummoxed. “What you said in your memo was we need this [injunction] because we don't have sufficient reassurance that Binance.US customer assets … are in the control of BAM Trading. And you said you're concerned about the safety and security of those assets. And now you just told me, well, no, actually, the [injunction] is about all the investors on both platforms. What is it? Which is it?” Binance has maintained that Merit Peak has not received customer funds, and is only a vehicle for Zhao’s own personal wealth and trading. That’s still questionably ethical if true – it could mean CZ was trading against his customers. But Judge Jackson did not seem to find it relevant to the question of Binance.US and the security of customer funds there. Jackson later in the hearing cited arguments by Binance that the SEC had “no evidence” of a risk to U.S. customer funds. Read the full article here. – David Z. Morris @davidzmorris [email protected] | 